Optimal Taxation of Education with an Initial Endowment of Human Capital

Christoph Braun

No 210, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Bovenberg and Jacobs (2005) and Richter (2009) derive the education effi ciency theorem: In a second-best optimum, the education decision is undistorted if the function expressing the stock of human capital features a constant elasticity with respect to education. I drop this assumption. The household inherits an initial stock of human capital, implying that the aforementioned elasticity is increasing. In a two-period Ramsey model of optimal taxation, I show that the education effi ciency theorem does not hold. In a second-best optimum, the discounted marginal social return to education is smaller than the marginal social cost. The household overinvests in human capital relative to the first best. The government eff ectively subsidizes the return to education.

Keywords: optimal taxation; human capital (search for similar items in EconPapers)
JEL-codes: H21 I28 J24 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/45339/1/655722513.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:210

Access Statistics for this paper

More papers in Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().